* Canadian dollar at C$1.2915, or 77.43 U.S. cents
* Bond prices higher across the yield curve
* Bank of Canada interest rate decision awaited on Wednesday
TORONTO, July 11 (Reuters) - The Canadian dollar weakened on
Tuesday against its U.S. counterpart as prices of oil fell and
the greenback made broader gains, but losses for the loonie were
limited ahead of an expected interest rate hike by the Bank of
Canada on Wednesday.
Prices of oil, one of Canada's major exports, fell as global
oversupply encouraged several banks to cut their forecasts for
crude for this year and 2018.
U.S. crude prices were down 0.25 percent at $44.29 a
barrel.
The U.S. dollar ground higher against the basket of
currencies used to measure its broader strength, helped by the
past fortnight's 25 basis-point rise in 10-year U.S. government
bond yields.
At 9:42 a.m. ET (1342 GMT), the Canadian dollar was
trading at C$1.2915 to the greenback, or 77.43 U.S. cents, down
0.2 percent.
The currency traded in a range of C$1.2886 to C$1.2926. On
Friday, the loonie had touched its highest in nearly 10 months
at C$1.2860 after stronger-than-expected domestic jobs data
boosted chances of a rate increase this week.
Chances of a hike on Wednesday sit at 88 percent, data from
the overnight index swaps market shows. A nearly 80-percent
chance of a second hike has been implied by December.
After years of being warned that borrowing costs would have
to rise eventually, debt-happy Canadians may be about to face a
reckoning if the Bank of Canada hikes. (nL1N1JZ0GS)
Canadian government bond prices were higher across the yield
curve, outperforming U.S. Treasuries. The two-year
rose 2.5 Canadian cents to yield 1.146 percent and the 10-year
climbed 17 Canadian cents to yield 1.874 percent.
The 2-year yield fell 1.5 basis further below its U.S.
equivalent to a spread of -24.2 basis points. The spread had
touched its narrowest on Tuesday since October at -22.7 basis
points.
Canadian housing starts rose more than expected in June as
construction intentions in and around Toronto remained strong
while Vancouver trended downwards, data from the Canada Mortgage
and Housing Corporation showed.
(Reporting by Fergal Smith; Editing by Nick Zieminski)